Restrict Trading in 331 Companies - Retail investors are being penalised for the alleged fault of promoters..!

Restrict
Trading in 331 Companies - Retail investors are being penalised for the alleged
fault of promoters..!

by Mr.
NISHANTH VASUDEVAN

﻿The Securities &
Exchange Board of India's (SEBI's) surprise move, asking exchanges to restrict
trading in 331 companies, has jolted many in the market. While the overnight
suspension of trading in these stocks was a bolt from the blue, what has left
market participants scratching their heads is the presence of some notable
small-cap companies.

Trading in stocks which
were included in the “shell companies“ list has been suspended based on the
stages of the so-called Graded Surveillance Measure (GSM). The restrictions on
trading in these stocks are different at various stages.

For example, investors
wanting to buy stocks placed in the fifth and sixth stages have to pay a
deposit of 200% of the trade value. Similarly , many of these stocks will be
allowed to be traded only once a month.

The latest SEBI move is
seen as part of the efforts of the government and regulators to clamp down on
money laundering. But, what's perplexing market watchers is that the regulator
did not disclose the alleged illegal activities by these companies. The only
giveaway was SEBI identified them as shell companies, which are traditionally
firms that do not have any major assets and have been used for tax evasion.

The debate here is
whether some of these companies, which have influential shareholders such as
large mutual funds, are just shell companies to launder money .

One theory doing the
rounds in the market is some of the firms were engaged in unlawful activities
during the government's demonetisation drive. This though could not be
ascertained independently .

While the regulator and
exchanges have cracked down on companies, which they suspected were helping
evade taxes, in the past, this would have been seen as the severest move by the
regulator because of the speed of its implementation and the superior profile
of some of the companies involved. By suspending trading in these stocks
overnight, SEBI has managed to keep an element of surprise, giving those
involved little time to wriggle out of the arrangement.

While the regulatory
clean-up will certainly instill fear among the wrong-doers, it is also having
unintended consequences. As of today, retail investors have been left holding
duds, unable to fathom when they would be able to exit these investments.

One could point fingers
at them for putting money in companies with no revenues or assets. There are
certainly many such firms in the list. But, how can they be blamed for
investing in firms with affluent shareholders and strong growth prospects.

Many of these stocks
will be traded only once in a month and it won't be surprising to see sell
orders far outnumbering buy orders. Few investors would be interested in buying
stocks that are under the regulatory glare by paying a deposit of 200% of the
total value of the purchases.

Here, retail investors
are being penalised for the alleged fault of promoters.

In future, Sebi, while
attempting to eradicate such misconducts in the stock market, needs to keep in
mind the immediate interests of public shareholders as well.

Restrict Trading in 331 Companies - Retail investors are being penalised for the alleged fault of promoters..!
Reviewed by S. Chitra
on
August 10, 2017
Rating: 5 Restrict Trading in 331 Companies - Retail investors are being penalised for the alleged fault of promoters..! by Mr. NISHANTH VASUDEVA...